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Synergy Land Group, LLC is seeking experienced Title, Abstracting, Due Diligence, Leasing & Mineral Acquisition agents for contract positions locally and out of State. The ability to travel is a plus. Please submit a detail of your work experience, resume, references, and day rate requirements to info@synergylandgroup.net.

In the Smith case, the mineral servitude owners brought an action against the surface owners alleging that the surface owners were attempting to usurp their rights under the mineral servitude. The case discusses many legal issues, but we will focus on the arguments and decisions of the court regarding mineral servitude maintenance.

The defendants, Billy and Betty Ruth Andrews, owned several tracts of land located in Sections 23 and 33, Township 13 North, Range 14 West in DeSoto Parish. Ameritas Life Insurance Corporation owned a mineral servitude burdening part of the land, and the plaintiffs, the Smiths, owned a mineral servitude burdening some of the same property. Ameritas and the Smiths executed oil, gas and mineral leases in 1966 on the servitudes. Four wells were drilled, but only one well continued to produce, the Rogers No. 1 Well. This case concerns operations on and production from the Rogers No. 1 Well.

David Ogwyn, dba Quest Energies, LLC, acquired the 1966 Leases and was designated as operator of the Rogers Well. In 1994, the Smiths and Ameritas executed oil, gas and mineral leases in favor of Ogwyn. In 2001, Terry Dale Jordan was named operator of the wells, and Quest assigned the leases to Mr. Jordan. Sometime in 1990, Quest and Mr. Andrews entered into a verbal agreement whereby Mr. Andrews would serve as pumper on the Rogers Well, and would share in the net profits from the well. In May of 1997, Mr. Andrews reported that the Rogers Well was having difficulties and stopped pumping; however, evidence was presented that the well continued to use electricity through September of 1998. Further, on May 21, 1999, oil was sold from the storage tanks, and the Smiths and Ameritas received royalty payments as a result of said production and sale.

In 2007, the Smiths and Ameritas executed oil, gas and mineral leases in favor of Beusa. In 2008, Mr. Andrews presented evidence to the Louisiana Office of Conservation that production on the Rogers Well had stopped producing in 1997, that the servitude owners were aware of the lack of production, and the Office of Conversation amended the records to show that the well did not produce after 1997. Mr. Andrews then contacted Beusa and informed Beusa that all mineral rights will be united in the Andrews and to hold off on drilling any additional wells. Mr. Andrews then contacted the Smiths and Ameritas demanding acknowledgment that the mineral servitudes had since terminated. The Smiths filed a lawsuit against the defendants, Quest, Mr. Jordan and Mr. Ogwyn alleging that the defendants were attempting to usurp their mineral servitude. Mr. Andrew filed a reconventional demand asserting that the Rogers Well ceased producing in 1997; therefore, the mineral servitudes have terminated. After several summary judgments and writ applications, a bench trial was held whereby the court determined that Mr. Andrews was not credible, had presented false evidence to the court regarding the lack of production from the Rogers Well and ruled in favor of the mineral servitude owners. Mr. Andrews appealed claiming numerous assignments of error, but we will focus on the arguments relating to prescription of the mineral servitude.

Termination Due to Nonuse

Mr. Andrews argued that even if his testimony is disregarded, there is sufficient evidence to prove that the mineral servitude terminated through nonuse. To contradict the defendants assertion, the plaintiffs presented evidence that that the well used electricity through September of 1998 to power the pump. Further in October of 1997, 69 barrels of oil were sold from the storage tank attached to the well, and testimony was presented that no oil was brought from any other place and stored in the tank. Also, an engineer testified that the only way to get the oil levels measured in the tank in May of 1999 was through production from the Rogers Well. The court agreed with the evidence presented by the plaintiffs that there was production from 1997 through 1999.

Intent to Act for Servitude Owner

Mr. Andrews also argued that the actions of Mr. Jordan, the operator of the well, were not carried out on behalf of the mineral servitude owners, because there was no legal relationship between them. Citing La. R.S. 31:42 and 31:43, the court found that argument to be meritless. La. R.S. 31:42 states that “except as provided in Articles 44 through 52, use of a mineral servitude must be by the owner of the servitude, his representative or employee, or some other person acting on his behalf.” La. R.S. 31:43 provides that “a person is acting on behalf of a servitude owner only when there is a legal relationship between him and the servitude owner…or when there is clear and convincing evidence that he intended to act for the servitude owners. Silence or inaction by the servitude owner will not suffice to establish that a person is acting on behalf of the servitude owner.” Mr. Andrews argued there was no legal relationship, because when the Smith lease was assigned to Mr. Jordan, it had terminated under the 90 day continuous operations clause due to lack of operations. While the court found this to be true, it held that the plaintiff provided clear and convincing evidence that Mr. Jordan intended to act of the servitude owners.

Mr. Jordan testified that he had made a deal with Ogwyn and Quest to take over the Rogers Well to get it pumping again. He testified that he knew the wells were subject to a lease and that any production obtained as a result of his efforts would benefit the royalty owners. He testified that he believed the assignment of the leases from Ogwyn gave him the right to produce the Rogers Well and that he was acting for his own benefit and for anyone else who had an interest in the lease. Further, the assignment clearly referenced that the leases were executed by mineral servitude owners. The court held that this evidence was sufficient to show that Mr. Jordan was aware that the Smiths, as mineral servitude owners, had rights to any production and that he was acting to make money for himself and the mineral owners.

Production Under R.S. 31:38

Mr. Andrew’s third argument was that production obtained by Mr. Jordan was insufficient to interrupt the running of prescription, as only a small amount was obtained, and it was never proven to be oil. The court rejected the argument by citing La. R.S. 31:29, 31:36 and 31:38. Prescription of nonuse running against a mineral servitude is interrupted by good faith operations for the discovery and production of minerals. To interrupt prescription, it is not necessary that minerals be produced in paying quantities. It is only necessary that minerals be produced in good faith with the intent of saving or otherwise using them for some beneficial purpose. Mr. Jordan utilized a bumping process to get the well producing oil again. He went to the well every other day, and each time the well was operational and was pumping oil. Mr. Jordan stated that the well produced between five to nine barrels of oil, but it was never enough to flow into the storage tank. The evidence showed that Mr. Jordan obtained production from the well from late 2001 through January 14, 2002. The court held that the defendants were incorrect in arguing that the amount of oil obtained was insufficient to satisfy the requirements of La. R.S. 31:38. The statute only requires that minerals actually be produced in good faith with the intent of saving them for a beneficial purpose. Mr. Jordan testified that he intended to achieve enough production to make money for himself and the mineral owners, and the court held that was sufficient to meet the requirements of La. R.S. 31:38.

Operations Under R.S. 31:39

Mr. Jordan testified that the pump was hung down, and he jarred it loose by causing the rods to strike the pump. The process is called “bumping” and took several days. The defendants argued that “bumping” the well to restore production was not a sufficient operation under La. R.S. 31:39 to interrupt prescription. The comment to La. R.S. 31:39 states that operations should be construed to include any good faith reworking operations or operations for recompletion of the well in another sand that involve use of equipment in the well bore. Gathering of geological information does not suffice. The defendant argued that “operations” require the use of equipment in the well bore to be classified as a “good faith” operation and that bumping the well was not enough. In its decision, the court utilized the Jardell v Hillin Oil Co., 485 So.2d 919 (La. 1986) which discussed reworking operations. The court in Jardell held that reworking is any process or procedure you may undertake to either regain, increase or create new production in a well or activity to restore or increase production from a well that has been drilled. For reworking to occur, it is necessary first that production has ceased or slowed down or has never been achieved. Reworking need not involved additional drilling. The court in Jardell made it clear that reworking operations encompass essential preparatory steps. The court in Jardell ultimately held that timely essential preparatory steps directly related to resolving the issue were part of reworking operations. The court held that Mr. Jordan’s actions in jarring the well in order to cause the pump to function constituted a sufficient good faith reworking operation to interrupt prescription under La. R.S. 31:39. The court affirmed the decision of the trial court and held that the mineral servitudes were still in effect.

Andrea K. Tettleton is a partner of Mayhall Fondren Blaize. Andrea represents major and independent oil companies in title examination, division order work and contract negotiation. She graduated magna cum laude from Texas Christian University with a Bachelor of Science in Psychology. She earned her Juris Doctorate cum laude from the Paul M. Hebert Law Center at Louisiana State University in 2009.

We often hear people say, “May is such a busy month!” With Mothers’ Day, high school & college graduations, the close of the school year and Memorial Day to wrap things up, we are often in a space of celebration and honor – looking to what’s next on life’s journey. As we gleefully prepare for a relaxing summer vacation get-a-way, we also get to reflect on how well we have played the game for the first half of 2017. Have we achieved the goals that we set for ourselves at the beginning of the year? If so, how can we best use that momentum to continue propelling us forward and through the remainder of the year? If we’ve fallen short of our goals, we get to assess the “how” and “why” so that we may re-direct our words and habits towards successful goal attainment. We may also choose to forfeit those goals no longer conducive to our desires, while committing ourselves to new ones more fully aligned with our course trajectory.

Like so many who celebrate and eagerly await the next chapter, we revel during the month of May, knowing how we have persevered through many cold and rainy days to get to where we are right now. So, with every blooming rosebush and those lingering scents of magnolia, jasmine and honeysuckle, we find ourselves thankful and satisfied in our achievement and success. Our senses now awaken us to the possibilities of tomorrow, and we become re-energized and excited for what we will achieve before the year’s end. Will we seek to learn a new skill or obtain a certification? How will we be better leaders: in our homes; in our workplace; in our community? What will motivate us to stay committed to our goals and dreams? From whom will we learn something new and innovative in our careers? How will we positively influence our peers and encourage them towards greatness? Does “the next step” involve becoming a member of the LAPL Executive Committee??

If that last possibility perhaps piques your interest, we hope that you’ll consider becoming a part of the slate of candidates seeking to lead our LAPL organization in the upcoming cycle. The following positions are up for election: 1st Vice President, 2nd Vice President, Treasurer, LAPL Director (2) and AAPL Director. Ballots will be going out soon, so if you’re eager to be a part of the executive team, please contact Pete Van Der Veldt (337-281-6259) to submit your nomination.

And as we look to what’s next on our journey, “May” we always be kind, always be learning, and always be striving for greatness! in our careers? How will we positively influence our peers and encourage them towards greatness? Does “the next step” involve becoming a member of the LAPL Executive Committee??

If that last possibility perhaps piques your interest, we hope that you’ll consider becoming a part of the slate of candidates seeking to lead our LAPL organization in the upcoming cycle. The following positions are up for election: 1st Vice President, 2nd Vice President, Treasurer, LAPL Director (2) and AAPL Director. Ballots will be going out soon, so if you’re eager to be a part of the executive team, please contact Pete Van Der Veldt (337-988-9256) to submit your nomination.

And as we look to what’s next on our journey, “May” we always be kind, always be learning, and always be striving for greatness!

Roy Gish agreed to sell his 1,096–acre tract of land, complete with about 500 oil and gas wells, to Mohamed Saheid. Saheid faxed Gish an offer (“the Offer”) to buy the property for $4 million “for 100% ownership,” with $200,000 down and the remainder to be owner-financed over five years. On October 9, 2004, Saheid and Gish signed a one-page agreement (“the Agreement”) with respect to “Real Estate transaction involving 1,096 acres, including all oil and gas leases ….” The Agreement included the following provision:

Other: SELLER to give a best effort to deliver to BUYER the remaining 12.5% GISH family oil and gas lease holding.

On November 2, 2004, the parties executed an Act of Credit Sale and Assignment of Oil, Gas and Mineral Leases, Rights to Pipelines, Wells and Gathering Systems, and Equipment Leases (“the Act of Credit Sale”). The Act of Credit Sale recited that Gish and a certain trust conveyed “ALL THAT CERTAIN LOT OR PARCEL OF GROUND,” with all rights, ways, servitudes and component parts to Saheid. The instrument also included a special provision (“Paragraph K”) that stated:

K. The Trust and Purchaser acknowledge and agree that the Trust has represented to the Purchaser that the Trust is the sole and only owner of an undivided 87.5% interest in and to the leases assigned herein. Should that representation be incorrect, and should any claim be successfully asserted against the interest conveyed by the Trust to the Purchaser, then, and in that event, the purchase price attributable to said leases shall be reduced by the sum of [$400,000], without the necessity of the modification of this agreement and/or the execution of any other documents, provided, however, that any such claim be asserted on or before November 30, 2009.

Gish contended that he was the sole owner of the land and minerals, and that he had established the trust for tax purposes; he stated that the existence of the trust did not affect the 12.5% retention. He went on to argue that the parties intended for Gish to retain a 12.5% mineral interest in the property. At the trial court level, the parties stipulated that Saheid paid the 12.5% mineral royalty associated with this interest to Gish for almost four years.

When certain points of dispute arose, the parties executed an instrument entitled “Contract” on April 24, 2008, in which Saheid agreed to delete Paragraph K in its entirety from the Act of Credit Sale. The Contract also included the following provision (“Paragraph 2(d)”):

2. Buyer shall: * * *

d) Waive and relinquish all rights to reduce the purchase price based on any claim that the percentage interest in any land owners['] royalty interest or leases assigned to buyer were less than what has been represented by seller * * *. Buyer consents to and acknowledges that seller has and shall continue to withhold a 6.25% royalty for the Kennedy family and a 6.25% royalty to Ruth Sheppard et al, on the 1,096 acres.

Additionally, in February 2009, Gish and Saheid executed an Act of Correction which corrected property descriptions, but made no mention of the 12.5% reservation.

At trial, Saheid argued that because there was no express reservation in the instruments executed in connection with the sale, Gish was not entitled to the 12.5% interest. Gish, on the other hand, argued that the instruments reflected the intent to sell only an 87.5% interest. Allegedly, Saheid could not get financing for the purchase, so the parties settled on owner-financing with retention of a 12.5% mineral interest. However, Saheid claimed his original intention was to purchase all mineral rights with no reservation by Gish. Saheid argued that because the Correction was silent as to the 12.5% reservation, his original intent was clear.

In its ruling, the trial court cited the language in the Agreement (which referred to a 12.5% mineral interest “remaining”), the Act of Credit Sale (“an undivided 87.5% interest in and to the leases assigned herein”), and the Contract (“seller has and shall continue to withhold” two 6.25% shares). The court noted that the parties conceded that the Contract was “inartfully drafted” and that the “mineral interests were not reserved as they should have been.” Because of the ambiguity, the court accepted parol evidence. The court found that the parol evidence, along with the repeated mention of “12.5%” and “87.5%” in the instruments, and Saheid’s compliance with the 12.5% retention for several years, supported Gish’s argument that the intent of the parties was to convey only an 87.5% interest.

On appeal, Saheid argued that the trial court erred in allowing parol evidence because both the Act of Credit Sale and the Contract were clear and explicit, and lacked any language reserving a mineral interest. He went on to state that the four years of royalty payments were made in error. While the appellate court noted that the instruments lacked the standard phraseology of “grant, bargain, sell, convey,” it also noted that in the Contract, Saheid consented to and acknowledged the fact that Gish would withhold a 12.5% interest. Also, although it agreed with Saheid's position that the documents do not make an express reservation of mineral rights, the court held that the recurrent reference to a 12.5% interest—be it “remaining,” “withheld,” or inferred, along with Saheid paying Gish the mineral royalty for nearly four years, strongly suggested that the parties intended to make the reservation; therefore, Gish was entitled to the 12.5% mineral interest.

On March 23, 2004, plaintiffs and Long Petroleum, L.L.C. (“Long”) entered into an oil, gas and mineral lease which contained a habendum clause, a continuous drilling operations clause, a traditional Pugh clause, a “horizontal” Pugh clause, and an assignment clause. The continuous drilling operations clause provided:

If within ninety (90) days prior to the end of the primary term, Lessee should complete or abandon a well on the lands described above or on land pooled therewith, or if production previously secured should cease from any cause, this lease shall continue in force and effect to ninety (90) days from such completion or abandonment or cessation of production. If at the expiration of the primary term or at the expiration of the ninety (90) day period for in the preceding sentence, oil, gas, sulphur of other mineral is not being produced on said land or on land pooled therewith, but Lessee is then engaged in operations for drilling, completion or reworking thereof, or operations to achieve or restore production, or if production previously secured should cease from any cause after the expiration of the primary term, this lease shall remain in force so long thereafter as Lessee either (a) is engaged in operations for drilling, completion or reworking, or operations to achieve or restore production, with no cessation between operations or between such cessation of production and additional operations of more than ninety (90) consecutive day, or (b) is producing oil, gas, sulphur or other mineral from the said land hereunder or from land pooled therewith”(emphasis added).

The horizontal Pugh clause provided:

It is understood and agreed that this lease shall terminate at the expiration of the primary term as to all depths 100 feet below the deepest depth in any well drilled on the leased premises or on lands pooled therewith, subject however to the continuous drilling provisions contained in this lease.

The lease contained a primary term of three (3) years with an option to extend for an additional two (2) years. The option to extend was exercised and the primary term was extended to March 23, 2009. On August 1, 2008, Long assigned its rights, title and interest in the lease to Empress, L.L.C. (“Empress”) except Long reserved “all rights, title and interest in strata and depths from the surface to the base of the Cotton Valley formation.”

On January 16, 2009, a well (the “Edwards Well”) was spudded on lands unitized with the leased premises. This well was completed in June 2009 at 8,200 feet in the Hosston formation, and the well produced through December 31, 2011. Thereafter, within ninety (90) days of completion of the Edwards Well, Chesapeake spud a well (the “Yarbrough Well”) on September 21, 2009 on lands unitized with the leased premises with the purpose of producing from the Haynesville Zone. The Yarbrough Well was completed on June 30, 2010 and it was producing as of the date of this decision (April 8, 2016).

The plaintiffs believed that the lease had expired as to depths below to base of the Hosston formation on March 23, 2009 and, on March 5, 2012, requested that Long, Empress, Chesapeake and any other working interest owners execute a partial release as to “all depths 100 feet below the deepest depth in the Edwards No. 1 Well in accordance with [the provisions of the] Lease.” On March 15, 2012, defendants released the lease as to “all strata 100 [feet] below the stratigraphic equivalent of the Haynesville Shale formation” pursuant to the horizontal Pugh clause contained in the lease.

On August 14, 2012, plaintiffs filed suit, alleging that the lease had terminated as to all depths below the base of the Cotton Valley formation. The plaintiffs argued that the lease was horizontally divided as a result of the assignment of the lease as to depths below the base of the Cotton Valley formation and that as of March 23, 2009 (the expiration of the primary term) operations had not been conducted on depths below the base of the Cotton Valley formation sufficient to maintain the lease as to those deeper depths. On March 25, 2014, plaintiffs filed a motion for summary judgment; the defendants filed an opposition and a cross-motion. The district court granted the defendants’ motion for summary judgment, ruling that “although the Edwards Well ceased producing, the production from the Yarbrough Well continues to hold the entire lease.”

The Second Circuit affirmed the district court’s ruling, holding that the assignment of the lease as to depths below the base of the Cotton Valley formation from Long to Empress did not constitute a division of the lease; thus, operations and/or production from depths either above or below the Cotton Valley formation was sufficient to maintain the lea, at least until 90 days after completion of the Yarbrough Well. The court further held that because there was no evidence of record to indicate that there was a lapse in activity for any 90-day period, and because the Yarbrough Well was completed on June 30, 2010 without a gap of ninety (90) days since drilling operations commenced, the lease was maintained beyond the extended primary term by the “continuous drilling operation.” Specifically, the court stated that the “defendants were engaged in operations for drilling, completion or reworking, or [in] operations to achieve or restore production, with no cessation between operations or between such cessation of production and additional operations of more than ninety (90) consecutive days.”

Gabriel R. Ackal, Jr. is an associate with the law firm of Randazzo Giglio & Bailey LLC. Before practicing law, Gabe worked as an Independent Petroleum Landman in Louisiana and Texas. As a landman, Gabe has experience abstracting title and managing lease acquisition plays. His legal practice is primarily focused on Louisiana and Texas mineral and energy law, including rendering drill site and division order title opinions, as well as counseling on transactional matters, and providing nuts and bolts operational advice. Gabe is licensed to practice law in Louisiana (2010) and Texas (2013).

Well it’s here, and we could not have made it possible without the generosity of our Sponsors. I wish to first thank and recognize the following for stepping up:

Beta Land Services, LLC

Schoeffler Energy Group, Inc.

Mack Energy Co.

Scorpion Land Services, LLC

Petroquest Energy, LLC

Liskow & Lewis

Penterra Services, LLC

Onebane Law Firm

Bullen & Plauche, LLC

Orbit Energy, Inc.

Planet Operating, LLC

C.H. Fenstermaker & Associates

SAPL

Sterling Automotive

iLandman

Synergy Land Group, LLC

MKM & Associates, Inc.

Oil Land Services, Inc.

Mark A. O’Neal & Associates, Inc.

Trinity Energy, LLC

Gateway Land Services, LLC

Milling Benson Woodward, LLP

Audubon Energy, LLC

Hyland Abstracting, LLC

Stone Energy Corporation

Thank you for your support and making these events possible!

I also want to thank everyone on the Executive Committee for their assistance and hard work in moving these events forward. Most are not aware, but due to the decline in membership and the industry, the LAPL was unable to make scholarships available for the ULL Petroleum Land & Resource Management students this Spring. On my watch, and the first time I’m aware of. Therefore, any “meat left on the bone” from the events this week will ensure scholarships will be available next time around no matter what the future holds. So, get online, buy your tickets and attend the boil! Let’s make these events a success!

There have been flurries of activity in recent months and I hope everyone is overwhelmed with work. Hopefully, this is a sign of more things to come. That said, we continue to have openings this year for Safety Meetings and I thank S. Paul Provenza for filling the void this past March meeting at the Tap Room. I know everyone who attended had a great time. Also, we will soon be moving forward with elections and this is your opportunity to serve and better our organization. Be looking for the announcements and throw your hat in the ring. I extend my sincerest thanks for those who have served, and continue to serve and support the LAPL.

Mardi Gras is over and the Lenten season has begun, which reminds us all of the sacrifices we should be making in our daily lives. Energy prices seem be dropping again due to another supply glut, which is an uneasy feeling for all in our industry.

As energy prices fluctuate we are often asked to hurry up and wait as projects die and then become a priority once again. This back and forth struggle seems to test our knowledge and fortitude on a daily basis which can frustrate even the most experienced.

During these periods of back and forth we must be ready to be our best in all situations, enhancing the current project when times are hectic and bettering ourselves in the sluggish times. This means taking advantage of learning opportunities while we have idle time waiting for the next opening. The knowledge we search for comes in many forms and is readily available to those who seek it, especially here in Lafayette.

First, don’t forget the details and remember the mistakes you have made and the lessons you have learned from those mistakes. Don’t forget your landowners, clients and peers and make sure you keep a good relationship with your past associates because you will talk to them again. Keep good notes and always write down contact names and phone numbers. Maintain superior records, complete files and preserve vetted documents for future use.

Secondly, get involved, sponsor a new member in LAPL, go to safety meetings, run for an EC position and most of all attend educational events. The LAPL and AAPL offer many events that allow you to learn more about your industry while providing you with continuing education credits and a venue to network. Register for a PLRM class at ULL if you have not already done so, they are unique to our area and will validate your career choice.

Additionally, some might have to extend their range and travel out of their comfort area. This means travel away from home and family which adds extra stress, therefore, please be aware, stay safe and take the time to explore other regional associations and what they have to offer. Explore new opportunities in these other regions in which to utilize your talent and knowledge, like road/utility right of way and cellular tower site acquisition or even alterative energy employment.

Lastly, we are in the era of more for less, saving money, being innovative through technology and of course time management. Use the resources offered to you to become a well rounded professional. I’m sure all of you have heard the saying: low cost, quick or accuracy, pick two. It is said that you cannot be swift, inexpensive and precise all at the same time but I think in these trying times we will be tasked to accomplish all three in order to compete.

The Louisiana Court of Appeal, Second Circuit, recently issued opinions analyzing whether the unintended omission of a mineral rights reservations from an act transferring ownership of immovable property can be corrected by a notary’s affidavit of correction, and whether the running of prescription of nonuse on a mineral servitude can be interrupted by the good faith operations of an operator with no legal relationship to the servitude owners. The decisions are discussed below.

In Petro-Chem Operating Company, Inc. v. Flat River Farms, L.L.C., No. 51,212 (La. App. 2 Cir. 3/1/17), 2017 WL 786868, the issues considered by the Court included whether the omission of a mineral rights reservation from an act transferring immovable property interests can be corrected by a notary’s affidavit of correction pursuant to La. R.S. 35:2.1. The statute allows for correction of “clerical errors” in acts transferring mineral rights by an affidavit of correction executed by the notary who notarized the execution of the act. The Court concluded that omissions of mineral rights reservation from acts of exchange are not “clerical errors” and cannot be corrected by notarial affidavits.

Relevant Facts:

In 2004, Larry Lott sold Raymond J. Lasseigne a 63-acre tract of land (“Tract A”) within a mineral servitude in Bossier Parish, Louisiana. Later, a defect in the 2004 act of sale from Lott to Lasseigne was discovered. In order to correct the defect, Lott and Lasseigne exchanged Tract A with another piece of property (“Tract B”) owned by Lott in the mineral servitude. This was accomplished by an act of exchange recorded in the conveyance records of Bossier Parish on December 17, 2007.

As originally recorded in the conveyance records, there was no reservation of mineral rights in the act of exchange between Lott and Lasseigne. Therefore, as a result of the exchange, Lott acquired Tract A with both its surface and mineral rights, and Lasseigne acquired Tract B with both its surface and mineral rights.

About three months later, on March 26, 2008, an affidavit of correction executed by the notary who witnessed the act of exchange was recorded in the conveyance records. The affidavit stated that the intent of Lott and Lasseigne in executing the act of exchange was for Lott to reserve the mineral rights to Tract B.

Petro-Chem Operating Company, Inc., subsequently filed a concursus action seeking to resolve competing ownership interests in minerals for land on which it was operating. In the lawsuit, Lasseigne filed a motion for summary judgment seeking a declaration that the affidavit of correction is invalid and requesting that it be stricken from the conveyance records. The district court agreed that the act of exchange was invalid and the omission of the mineral reservation could not be corrected a notarial affidavit of correction.

A. (1) A clerical error in a notarial act affecting movable or immovable property or any other rights, corporeal or incorporeal, may be corrected by an act of correction executed by any of the following:

(a) The person who was the notary or one of the notaries before whom the act was passed.

(b) The notary who actually prepared the act containing the error.

The Mineral Code, at La. R.S. 31:18, provides that a mineral right is an incorporeal immovable.

Article 1839 of the Civil Code governs transfers of immovable property and states in key part: “A transfer of immovable property must be made by authentic act or by act under private signature.”

Article 1833 of the Civil Code defines an “authentic act” as a writing executed before a notary public or other officer authorized to perform that function, in the presence of two witnesses, and signed by each party who executed it, by each witness, and by each notary public before whom it was executed.

Court’s Analysis:

The Court explained that the act of exchange between Lott and Lasseigne was completed as an authentic act before a notary and signed by both parties and two witnesses.

The Court reasoned that it is clear from the language of La. R.S. 35:2.1 that a notarial affidavit of correction may correct only a “clerical error.” By statutory definition, the Court explained, a clear error is an error in writing or copying a document.

A reservation of mineral rights is a substantive change, the Court continued, because the addition of a reservation of mineral rights would change the effect of the authentic act in regard to the real rights held by Lott and Lasseigne. Because reservation of real rights is a substantive issue which implicates the thought process and intention of the parties to the transaction, a notarial affidavit of correction cannot be used to correct the omission of a mineral rights reservation in a sale of land.

For these reasons, the Court held that the district court properly ruled that the notary’s affidavit of correction could not correct the omission of the mineral reservation from the act of exchange.

Summary of Decision:

In Louisiana, a reservation of mineral rights incorrectly omitted from an act transferring ownership of land cannot be corrected by an affidavit of correction executed by the notary who notarized the execution of the act of transfer.

Good Faith Operations by an Operator with No Legal Relationship to Servitude Owners Can Interrupt the Running of Prescription of Nonuse Against the Servitude.

In Smith v. Andrews, No. 51,186 (La. App. 2 Cir. 2/15/17), 2017 WL 603992, the Court considered issues including whether mineral servitude prescribed due to a lack of good faith operations by on the servitude for a period ten years. The Court of Appeal held that good faith operations are sufficient to interrupt prescription even where the operations are by an operator with no legal relationship to the servitude owners.

Relevant Facts:

B.J. and Betty Ruth Andrews own several tracts of land in DeSoto Parish, Louisiana. The Andrews’ land is burdened with one mineral servitude held by Ameritas Life Insurance Corporation (“Ameritas”), and a second mineral servitude held by heirs of Sara R. Smith (the “Smith Heirs”).

Leases on the servitudes were originally executed by Ameritas’ predecessor and Sara R. Smith in 1966. Four producing wells were drilled on the leases.

Ultimately, the leases were assigned to Terry Dale Jordan effective November 1, 2001. However, the leases had lapsed prior to the assignment. Thus, Jordan did not have a valid lease with Ameritas or the Smith Heirs. No other legal relationship (such as agency or co-ownership) existed between Jordan and the servitude owners. Also on November 1, 2001, the operator of the wells was changed to Jordan.

In the lawsuit, the Andrews claimed that the mineral servitudes of the Smith Heirs and Ameritas had prescribed due to ten years of nonuse between 1997 and 2007. The Andrews claimed to be the owners of the mineral rights.

During the trial, the testimony of Jordan established that, in 2001 and 2002, Jordan attempted to regain production from the last producing well. He went to the well every day for a few days and then started going every other day. Each time he went to the site, the well was operational and was pumping oil. He opened a bleeder valve and observed oil coming out of the well. One day, he saw the well pumping and obtained a sample of pure oil in an old bottle. Jordan testified that he able to bottom bump the well and get it pumping oil again, although the well did not operate for very long. Further, electric company records show that the well used electricity from November 2001 through January 14, 2002.

Jordan also testified that he understood that the wells were subject to a lease and that any production obtained would benefit the Smith Heirs and Ameritas.

The district court concluded that Jordan was acting on behalf of the Smith Heirs and Ameritas in his attempts to regain production from the well, and his use of the servitude was for their benefit as servitude owners. As a result, the servitudes had not prescribed and the Andrews did not own the mineral rights.

Relevant Mineral Code Articles:

Article 27 of the Mineral Code provides that a mineral servitude is extinguished by prescription for nonuse if not exercised for a period of ten years. La. R.S. 31:27(1).

Article 29 of the Mineral Code, La. R.S. 31:29, defines provides that the prescription of nonuse running against a servitude is interrupted by “good faith operations for the discovery and production of minerals,” as defined by the article.

Article 42 of the Mineral Code, La. R.S. 31:42, states:

Except as provided in Articles 44 through 52, use of a mineral servitude must be by the owner of the servitude, his representative or employee, or some other person acting on his behalf.

Article 43 of the Mineral Code, La. R.S. 31:43, provides:

A person is acting on behalf of the servitude owner only when there is a legal relationship between him and the servitude owner, such as co-ownership or agency, or when there is clear and convincing evidence that he intended to act for the servitude owner. Silence or inaction by the servitude owner will not suffice to establish that a person is acting on behalf of the servitude owner.

Court’s Analysis:

The Andrews argued that Jordan's actions from 2001 through 2002 were not sufficient to interrupt prescription on the servitudes because he had no legal relationship with the servitude owners and he did not act with the intent to benefit them.

The Court reasoned that La. R.S. 31:43 provides that a person may act on behalf of the servitude owner to interrupt prescription when there is clear and convincing evidence that he intended to act for the servitude owner. Based upon the record, the Court found that such a showing was made.

The Court found that Jordan was aware that both the Smith Heirs and Ameritas had rights to any production that might be obtained from the well and that he was acting to make money for himself and them. Jordan's unrebutted testimony was clear that any actions he took were done with the intent to act not only for himself, but also for the servitude owners.

The Court concluded that Jordan’s attempts to regain production from the well were on behalf of the Smith Heirs and Ameritas and for their benefit.

The Court held that the district court properly determined Jordan’s activities in 2001 and 2002 interrupted the running of prescription of nonuse against the servitudes despite Jordan not having a legal relationship with the Smith Heirs and Ameritas.

Summary of Decision:

The running of prescription of nonuse on a mineral servitude can be interrupted by good faith operations for the discovery and production of minerals conducted by a person with no legal relationship to the servitude owners.

Brett Venn is a partner in Jones Walker LLP’s Business & Commercial Litigation Practice Group and practices from the firm's New Orleans office. His practice focuses on a variety of business and commercial disputes. He has recently represented companies in disputes under the Louisiana Oil Well Lien Act, in construction lien and contract disputes, and in litigation arising out of the Bayou Corne sinkhole in Assumption Parish, Louisiana. He also has experience in investigations involving allegations of commercial kickbacks and conflicts of interest. He was named a “Rising Star” in the area of Business Litigation in the 2016 and 2017 editions of Louisiana Super Lawyers.

LAPL ANNUAL CRAWFISH BOIL & GOLF TOURNAMENT TO BE HELD IN CONJUNCTION WITH THE SPRING EDUCATIONAL SEMINAR

This Sponsorship opportunity will give you exposure at all three events!

The LAPL has confirmed dates for our Annual Crawfish boil to be held on Thursday, April 27 at Acadian Village, and the Spring Educational Seminar will be held the same day at the Petroleum Club. The annual Golf Tournament is scheduled for the following day, Friday, April 28, at Farm D'Allie. Your organization will be recognized at all three of these events. These events are to be held together in conjunction with Festival International and provide an extra reason for those out of town to make the trip.

We need to assess the sponsorship commitments before moving forward.

Given our decrease in membership, downturn in the industry, and most folks working abroad, we need to know your level of commitment from the sponsorships identified below before we pull the trigger. Time being of the essence, your confirmation is needed by Friday, March 3, so we can confirm whether it will be economic for the LAPL to move forward with these events as planned. If we don't move forward with the events as identified above you're under no commitment and will be notified.

Links:

It’s time to dust off your tools (computers, pens, maps, etc.) and get ready for 2017! The bottom is hopefully behind us and we can begin to concentrate on new projects.

There are many changes in the type of work that landmen perform and new tools to get the work done. We are also expected to be more mobile since much of the work is in other states. Gone are the days that we could settle in on a years-long seismic/leasing project in Louisiana. Much of our skills now have to incorporate some elements of due-diligence knowledge and other states’ laws as they apply to our industry.

Leading through these changes can be an exciting time to be in our industry. We will have to adapt to using different tools, but that’s what land professional do – we adapt.

Here are some of the ways that AAPL is trying to assist its members with our ever-evolving industry (as taken from points given by Melanie Bell – AAPL Executive VP):

·Assist in the development of additional AAPL model forms for industry use

Locally, your LAPL leadership is looking at AAPL’s position on several of the listed objectives and how we can better serve our members with the recent losses to our membership numbers. If anyone has a suggestion, please call one of your LAPL committee chairmen to let us know what you are thinking.

NAPE Summit takes place February 15-17 in Houston. If there is any way possible to make it there, is should be a great networking opportunity. It is also worth noting that NAPE Summit and Summer NAPE in Houston will be the only expos put on by AAPL this year since there has been a hold put on other satellite NAPE shows.

As always, thank you all for your continued support and may God Bless each of you.

I think it is safe to say that many of us are happy that 2016 is over, and we can look forward to a new year, full of new possibilities. Hopefully we will all be able to breathe easier this year with an ample amount of work for all. Like a wise person once told me, there’s enough for everyone!

A new year brings on new LAPL events to look forward to. We are currently working towards finalizing crawfish boil/golf tournament plans, and are investigating the possibility of changing things up a little this year. We have been discussing the idea of having a spring seminar in conjunction with the crawfish boil and golf tournament. We are also speaking with groups outside of the LAPL associated with our industry, to possibly combine resources to reduce costs for the event. The motivation behind these new ideas is to hopefully breathe new life into a classic LAPL event. Although adding a seminar to the crawfish boil and golf tournament is certainly a positive addition for our members, we also anticipate that it will encourage more of the non-members who receive invites to the event, to make it a point to attend.

As expected with the downturn of the industry in the past few years, our membership has suffered. Even though we have dropped a bit in numbers, an important note here and certainly one to hang our hats on, is that we are still considered a large association according to the AAPL. Even through these rough times, we have been able to maintain a healthy membership. With that said, we can always make things better! If you have friends and/or work associates that are not LAPL members, please encourage them to join our association. I have learned over time that things like the LAPL keep me in the game, so to speak, in more ways than one. In a profession that is primarily made up of independent contractors, locally speaking, it is good to have a group of people you can turn to who have the same work conditions as yourself. Often it may be hard to relate to others who are salary employees, who don’t necessarily encounter the same types of work instances as we do.

Please reach out to your fellow work associates who are not currently LAPL members, and request that they join our association. I think a great starting point here, is for each of us to get at least one person we know in the land business to join the LAPL. I cannot think of a better way to continue to grow and flourish as an association. As we all know, there is strength in numbers!

I would like to point out the importance of our sponsors. The LAPL is very lucky to have the sponsors that we have; none of this is possible without you! The generosity of our sponsors has kept us alive and kicking during this downturn, not to mention with the reduction in membership. Our sponsors continue to support and make things happen throughout each year. Please thank our sponsors whenever you see them at events or even around Lafayette. On behalf of LAPL, I would like to extend a true heart felt THANK YOU SPONSORS!

If you or someone you know would like to sponsor a Safety Meeting, please don’t hesitate to reach out to myself or someone else in the organization. We are always looking for safety meeting sponsors to keep the tradition alive. It is often something that gets repeated in the newsletter, but safety meeting really are a great way of keeping in touch with other professionals in our industry.

It has been a great experience being the 1st VP thus far, and I am looking forward to more fun with LAPL throughout the year!

HPS is looking for landmen with 4+ years of experience for due diligence research, much of which may be done locally/online in Lafayette. For consideration, please email resume and references to jbivins@hps-og.com.

I.Louisiana State and Federal Courts Split Over Parties Entitled to Reports Under La. R.S. 30:103.1

La. R.S. 30:103.1 requires operators or producers of oil and gas units created by the Louisiana Commissioner of Conservation to provide reports containing information related to well costs and production to owners of “unleased oil and gas interests” (referred to herein as “103.1 report(s)”). If an operator does not provide the information required under the statute in a manner that is sufficiently detailed after receiving a proper request, the operator or producer “shall forfeit his right to demand contribution from the owner or owners of the unleased oil and gas interests for the costs of the drilling operations of the well” under La. R.S. 30:103.2.

While almost the entirety of Louisiana jurisprudence involving La. R.S. 30:103.1 involves reporting to unleased mineral owners, Louisiana’s federal and state courts have recently become divided as to whether unit operators must provide 103.1 reports to not only unleased mineral owners but also non-operating working interest owners with an oil, gas and mineral lease within the confines of the unit at issue. This division arose as a result of the interpretation of what constitutes an “owner of an unleased oil and gas interest.”[1]

In XXI Oil & Gas v. Hilcorp I, the Louisiana Third Circuit Court of Appeal found that a unit operator was subject to La. R.S. 30:103.2’s penalty provision when it failed to provide a 103.1 report to a non-operating working interest owner who held oil, gas and mineral leases within the unit at issue.[2] In its decision, the Third Circuit did not examine the question of whether La. R.S. 30:103.1 was meant to require reporting to non-operating working interest owners or simply unleased mineral owners within a Commissioner’s Unit.[3] Instead, the Third Circuit’s opinion assumed that non-operating working interest owners were entitled to 103.1 reports.[4]

sequently, the U.S. District Court for the Western District of Louisiana came to a different conclusion as to what parties are entitled to 103.1 reports in TDX Energy, LLC v. Chesapeake Operating, Inc.[5] Similar to XXI Oil & Gas I, TDX Energy involved a claim by a non-operating working interest owner that it was entitled to 103.1 reports from a unit operator.[6] In response, the unit operator argued that the non-operating working interest owner was not afforded a remedy under La. R.S. 30:103.1-.2, because it was not an unleased mineral owner.[7] The non-operating working interest owner responded to this argument by contending that “the phrase ‘owner or owners of unleased oil and gas interests’ [was] a shorthand method of referring to the owner of oil and gas interests within a unit that are unleased by the unit operator” as opposed to mineral interests that are unleased at all.[8] The Western District rejected the non-operating working interest owner’s argument and held that the phrase “owner or owners of unleased oil and gas interests” refers to “oil and gas interests that are not leased at all.[9]

On September 28, 2016, the Louisiana Third Circuit issued another opinion in XXI Oil & Gas v. Hilcorp II.[10] Despite the fact that the Third Circuit did not examine whether or not La. R.S. 30:103.1-2 applied to unleased mineral owners and non-participating working interest owners in XXI Oil & Gas I, the Third Circuit’s recent opinion did address this question in light of the Western District’s decision in TDX Energy. In its decision, the Third Circuit explicitly rejected the Western District’s holding in TDX Energy and stated:

[W]hile decisions of federal courts are considered persuasive, especially cases concerning federal law, they are not binding on the courts of the State of Louisiana, especially on matters concerning the interpretation of state law which have been ruled upon.

We maintain our position that when an owner or operator drills a well, and that owner or operator has no valid oil, gas, or mineral lease on a portion of that land, the mineral lessee of those portions not leased by the operator or producer of the well has a claim to demand an accounting pursuant to La. R.S. 30:103.1, as an owner of a valid oil, gas, or mineral lease.[11]

The Third Circuit’s recent decision in XXI Oil & Gas II clearly conflicts with the Western District’s ruling in TDX Energy. As a result, operators or producers of Commissioner’s units face uncertainty as to what parties are entitled to 103.1 reports.[12] Therefore, until the conflict between Louisiana’s federal and state courts is resolved as to the proper interpretation of La. R.S. 30:103.1-2, unit operators should exercise caution in situations where a non-operating working interest owner with mineral leases in a Commissioner’s unit requests 103.1 reports.

II.Louisiana Third Circuit Addresses Payment of Royalties in Situations Involving Production Under a Mineral Lease Pursuant to a Conditional Allowable Prior to Unitization

In Gladney v. Anglo-Dutch Energy, L.L.C., the Third Circuit addressed the question of whether or not a mineral lessee must pay its lessor full lease-basis royalties for production undertaken during the effective period of a conditional allowable but prior to the effective date of a unit order.[13] In the case, the Plaintiffs granted a mineral lease to the Defendant-Lessee that provided for a 1/5 royalty in 2009.[14] The Defendant-Lessee drilled a gas well on the leased premises on February 14, 2012.[15] The well, which was to produce from a reservoir and zone under the property of multiple landowners, was completed on April 27, 2012 and began production on May 18, 2012.[16] Shortly before the well went on production, the Defendant-Lessee applied for a compulsory unit with the Office of Conservation.[17] In conjunction with their application, the Defendant-Lessee also sought a conditional allowable, which was granted on May 17, 2012, and provided as follows:

All monies generated from the date of first production, the disbursement of which is contingent upon the outcome of the current proceedings before the Office of Conservation for the Frio Zone will be disbursed upon results of those proceedings.[18]

Several months later, the Commissioner issued an order establishing the unit, and the order stated that it “shall be effective on and after October 30, 2012.”[19]

In 2013, the Plaintiffs made demand on the Defendant-Lessee on the grounds that “despite the October 30, 2012 effective date of the Commissioner’s Order, [the Defendant-Lessee] refused to pay Plaintiffs their full [1/5] Lessor’s Royalty” pursuant to the mineral lease between the parties.[20] The Plaintiffs’ primary argument was that while royalties could be paid on a “unit tract” basis after the effective date of the Commissioner’s Order, Plaintiffs were entitled to their full 1/5 royalty, on a lease-basis, from the date of first production until the effective date of the Commissioner’s Order.[21] The Defendant-Lessee contended that Plaintiffs were not entitled to their full lease-basis 1/5 royalty because the issuance of the conditional allowable required them to pay on a unit-basis and replaced its obligation under the mineral lease to pay full lease-based royalties.[22] The trial court accepted the Defendant-Lessee’s argument.[23]

The Third Circuit reversed and remanded and ultimately found that the Plaintiffs were entitled to their full 1/5 lease-basis royalty from the date of first production until the effective date of the unit. The Court’s primary reasoning was that the conditional allowable did not abrogate the contractual terms of the mineral lease between the Plaintiffs and the Defendant-Lessee:

the Office of Conservation does not attempt to interpret private mineral leases and other private contracts, as they are beyond its jurisdiction and authority.” Yuma v. Thompson, 98-1399 (La. 3/2/99), 731 So.2d 190, 197. In Arkansas Louisiana Gas Co. v. Southwest Natural Production Co., 60 So.2d 9, 11 (La. 1952), the Louisiana Supreme Court explained that the Commissioner of Conservation, when establishing a drilling unit, “did not intend to, and did not, in fact, abrogate the contracts between the several lessors and their respective lessees with respect to the nature or structure of their mineral ownership, or alter in any way the consideration to be paid and the method of payment.” The trial court’s judgment holding that Anglo-Dutch’s royalty obligations under the Mineral Lease were abrogated by the terms of the conditional allowable is in direct contrast to this longstanding rule that the Commissioner nor his office should alter private contractual rights.[24]

In addition, the Court noted the testimony of a former presiding officer over unitization proceedings who stated that:

[t]he issuance of a conditional allowable is not intended to affect in any manner the private contractual obligations of an operator or lessee on whose land is situated a well which is the subject of a unit application.” He also stated “[t]he Office of Conservation issues a conditional production allowable without consideration of, and without prejudice to, any private contractual rights between the operator and the landowner-lessee on whose lands the well is drilled.[25]

The Court also rejected the Defendant-Lessee’s argument that the Plaintiffs’ claims were a collateral attack on the Commissioner’s authority because the Plaintiffs were not attacking the Commissioner’s conditional allowable but simply seeking to enforce their rights under the mineral lease.[26] Finally, the Court rejected the Defendant-Lessee’s argument that it had no choice but to pay royalties on a unit-basis because payment of the full 1/5 lease-basis royalty would have resulted in double royalties.[27] In its reasoning, the Court noted that the Defendant-Lessee could have modified its lease obligations through a royalty escrow agreement, an option which Plaintiffs had suggested, but the Defendant-Lessee did not give the Plaintiffs such an option.[28]

Ultimately, the Gladney decision provides mineral lessees with clear instructions regarding the payment of royalties on production undertaken prior to the effectiveness of a unit. In addition, it shows that mineral lessees, when faced with situations that could be resolved by escrow or other alternative agreements, should undertake such steps in order to avoid potential litigation and/or royalty demands.

In Enable Mississippi River Transmission, L.L.C. v. Nadel & Gussman, L.L.C., the U.S. Fifth Circuit addressed whether federal courts had subject matter jurisdiction over claims stemming from the alleged migration and production of gas from a FERC certificated underground natural gas storage facility by an operator in a neighboring oil and gas unit formed by the Commissioner of Conservation.[29] The Fifth Circuit affirmed the Western District of Louisiana’s dismissal and found that such claims do not give rise to federal question jurisdiction.[30]

In the case, the Plaintiff argued that federal courts have jurisdiction to hear claims involving the production of storage gas by a neighboring oil and gas operator under 28 U.S.C. § 1331 (general federal question jurisdiction) and 15 U.S.C. § 717u (Natural Gas Act).[31] In support of its federal question jurisdiction argument, the Plaintiff did not assert that its claim was created by federal law.[32] Instead, it argued that its claims turned on substantial questions of federal law.[33] In addition, Plaintiff claimed that the Natural Gas Act’s (“NGA”) grant of exclusive jurisdiction extended to its claims against the well operator because its alleged production of storage gas interfered with the Plaintiff’s own rights and obligations under the NGA.[34]

A.Substantial Question of Federal Law

The Fifth Circuit rejected the Plaintiff’s argument that its claims turned on substantial questions of federal law. At the outset, the Fifth Circuit agreed with the District Court’s conclusion that Plaintiff’s claims amounted to nothing more than a conversion claim under Louisiana law.[35] As a result, the Court noted that “[f]or a state law claim to support federal subject matter jurisdiction, a federal issue must be ‘(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.’”[36]

Applying the required substantial question of federal law standard, the Court reasoned that the Plaintiff’s claims did not raise a question of federal law for the following reasons. First, the Court rejected the Plaintiff’s argument that its FERC Certificate of Public Convenience and Necessity, which is required for a party to operate a natural gas storage facility, does not address the property rights a facility operator may have over storage gas but instead merely authorizes the operation of a storage facility.[37] Second, the Court found that the Plaintiff’s FERC tariff, which provides certain rules regarding possession of storage gas, only applies between a storage facility operator and their customer and do not extend to other parties that may interfere with storage gas.[38] Third, the Fifth Circuit found that the Plaintiff’s facility as well as the operator’s oil and gas operations were subject to regulation by the Commissioner of Conservation.[39] As a result, it reasoned that Louisiana law provided the proper rules for determining which party had a right to the storage gas as opposed to federal law.[40] Finally, the Court rejected the Plaintiff’s argument that the well operator’s activities were outside of the production exception of the NGA because the gas being produced was traveling in interstate commerce.[41] In support of this conclusion, the Court noted that “producers are subject to the jurisdiction of the FERC when they engage in activities that can be classified as sales or transportation rather than as production or gathering”[42] and that the erroneous production of storage gas is still part of the production process.[43]

The Court also found that any federal issues involving the Plaintiff’s claims were not substantial because the “[r]egulation of the production and gathering of natural gas is left to the states.”[44] Furthermore, the Court recognized that asserting subject matter jurisdiction over such claims would disrupt the balance between state and federal regulation of natural gas markets.[45] In support of this point, the Court noted that “the Natural Gas Act ‘was drawn with meticulous regard for the continued exercise of state power, not to handicap or dilute it in any way’”[46] and that federal jurisdiction in this matter would interfere with the congressionally approved right of Louisiana to regulate production according to its own laws and in its own courts.[47]

B.Exclusive Federal Jurisdiction Under the Natural Gas Act

The Court rejected the Plaintiff’s second argument that the well operator’s actions interfered with the Plaintiff’s right to operate its storage facility and resulted in a violation of the NGA that fell within the confines of the NGA’s exclusive federal jurisdiction provision.[48] In its reasoning, the Fifth Circuit noted that the Plaintiff’s argument presented an issue of first impression as to “whether the NGA’s exclusive jurisdiction provision extend[ed] to actions involving third party interference.”[49] However, the Court noted that the Ninth and Sixth Circuits had previously addressed this question and found that because well operators are not subject to any duties under the NGA, they could not violate the NGA and be subject to its exclusive jurisdiction clause.[50] The Fifth Circuit agreed with the conclusion of its sister courts and refused to find that the operator’s action implicated a violation of the NGA.[51]

* Associate, Liskow & Lewis, B.A., University of Georgia, 2009. J.D., Paul M. Hebert Law Center, Louisiana State University, 2012. Any views expressed herein are my own and do not necessarily reflect the views of Liskow & Lewis and/or its clients. Copies of any decisions discussed herein are available from the author upon request.

[9]Id. (emphasis added). In support of its conclusion, the Western District stated that “[i]f the legislature had intended the statute to benefit ‘owners of oil and gas interests unleased by the operator,’ it should have so stated.” In addition, the Western District noted that such a conclusion does not lead to absurd consequences under the clear and unambiguous language of La. R.S. 30:103.2. Furthermore, the Court examined the language of Mineral Code article 111 and La. R.S. 30:10 to show that the term “unleased mineral owner” refers to the owner of mineral interests that are not leased by any party. Finally the Court stated that “[t]he legislature well may have intended to provide greater protections for landowners who typically are not as sophisticated as, or have the available resources of, individuals or entities that procure mineral leases.” Id. at 5-7.

[29]See Case No. 16-30269 (Dec. 23, 2016). Opinion available at http://www.ca5.uscourts.gov/opinions/pub/16/16-30269-CV0.pdf. In the interest of full disclosure, the author served as counsel of record in this matter. At the time of this update, the legal delays for rehearing and/or further review of this decision by the U.S. Supreme Court have not expired.

In Sterling Timber Assocs., L.L.C. v. Union Gas Operating Co., 2016 La. App. LEXIS 2034; 16-433 (La. App. 3 Cir. 11/02/2106), Sterling Timber Associates (“Sterling”) sold two parcels of property in Allen Parish, Louisiana to O’Neal Stuart Investment, L.L.C. and Barbara L. O’Neal (collectively “OSI”) as part of a transfer of more than 14,000 acres in Allen, Beauregard, Calcasieu, and Jefferson Davis parishes. The two parcels at issue were subject to a mineral servitude created in August 1995. Nevertheless, when Sterling sold the parcels on October 8, 2004, it reserved all mineral rights to the property in the act of sale. The same day, the vendee, OSI, executed a mineral deed in favor of Sterling on the 14,000 plus acres Sterling had just sold to OSI even though OSI did not own any mineral rights. In August 2010, OSI granted mineral leases on the two parcels to Orbit Energy Partners, which leases were eventually assigned to Union Gas Operating Company (“Union Gas”). Union Gas drilled and began producing from the two parcels, and Sterling filed suit, alleging it was entitled to the minerals being extracted therefrom.

On appeal, the Third Circuit agreed with the trial court that Rodgers v. CNG Producing Co., 528 So. 2d 786 (La. App. 3 Cir.), writ denied, 532 So.2d 180 (La. 1988) applied to the Sterling to OSI transaction and warranted the application of Louisiana Mineral Code Article 76 instead of Louisiana Mineral Code Article 77. La. R.S. 31:76 provides that “[t]he expectancy of a landowner in the extinction of an outstanding mineral servitude cannot be conveyed or reserved directly or indirectly.” An exception to this rule is provided in La. R.S. 31:77, which states: “If a party purports to acquire a mineral servitude from a landowner when the right purportedly acquired is outstanding in another and the landowner either subsequently acquires the outstanding right or is the owner of the land at the time it is extinguished, the after-acquired title doctrine operates to vest the right in the party who purported to acquire it to the full extent of his title.”

The application of Mineral Code Article 76 versus Article 77 was at issue in the Rodgers case decided by the Third Circuit in 1988. Like the facts in Sterling, the Rodgers sellersold property burdened by a mineral servitude and, in the sale instrument, indicated the reservation of mineral rights was part of the consideration for the transfer. Also like Sterling, the buyer in the Rodgers transaction executed a mineral deed in favor of the seller on the same day as the sale of the land. Furthermore, like Sterling, the Rodgers buyer knew that the seller owned no mineral interest in the land at the time it was sold. In both cases, only a future right to receive the mineral rights through prescription of nonuse existed.

Based on the factual similarities between Rodgers and the present case, the Sterling court reasoned that Rodgers was directly on point and merited the application of Mineral Code Article 76 to the contested transaction. The Sterling court adopted the Rodgers’ holding that the mineral conveyance from buyer to seller of a known outstanding mineral servitude was a disguised reservation of reversionary mineral rights, a violation of Louisiana public policy, and directly forbidden by La. R.S. 31:76. Furthermore, the Sterling court adopted Rogers’ finding that La. R.S. 31:77 did not apply because the purpose of Mineral Code Article 77 is to “… protect an innocent purchaser from an oversale of mineral rights by a land owner.” Sterling at 8, citing Rodgers at 789. An “oversale” occurs “… when a tract might be subject to grants or reservations in excess of the grantor’s ownership interest, i.e. the putative burden in excess of the owned mineral rights” [Sterling, citing Patrick H. Martin, Louisiana Mineral Law Treatise 141 (Patrick H. Martin ed., Claitor’s Publishing Division) 2012].

The Sterling court observed that “… in Rodgers and in this case, the purchaser of the property knew that the seller presently owned no mineral interest in the land. Only a future right to receive the mineral rights through nonuse was potentially present. As such, like in Rodgers, there was not an “oversale” here where an innocent party needed protection from a seller’s attempt to sell something that the seller did not presently own.” Sterling at 9.

Sterling and Rodgers confirm that a buyer’s execution of a mineral deed in favor of the seller in anticipation of applying the after-acquired title doctrine will be rejected as an attempt to circumvent Louisiana’s public policy against reserving reversionary mineral rights. Only “innocent” parties will benefit from the protection of Mineral Code Article 77, which exists to remedy an “oversale” where the buyer is unaware the seller does not own the mineral rights purportedly conveyed.

ROYALTY AND OVERRIDING ROYALTY DIFFERENTIATED FOR APPLICATION OF MANDATE

In Encana Oil & Gas (USA), Inc. v. Brammer Engineering, Inc., 2016 La. App. Lexis 2099, 51,045 (La. App. 2 Cir. 11/16/16) the Second Circuit Court of Appeal held that the language in a contract of mandate did not authorize the mandatary (Brammer) to reserve a free “overriding royalty” on its Principals’ (mineral lessor’s) royalty in a mineral lease without actually securing an additional [overriding] royalty for the mineral lessor.

A contract of mandate is commonly referred to as a “power-of-attorney” and may be onerous (performed for compensation) or gratuitous (performed for free). See La. C.C. Arts. 2989, et seq. The onerous contract of mandate in this case provided:

“It is recognized that mineral leases executed in the future by Agent on behalf of Principal will provide for the reservation of an additional free overriding royalty interest on behalf of the lessors. It is agreed that in consideration of the services rendered and to be rendered by Agent, [sic] shall be entitled to compensation as follows, to wit: 1. On oil, gas and mineral leases under the terms of which not less than 1/16 free overriding royalty is reserved, Agent shall be entitled to a 1/32 free overriding royalty…”. Brammer at 8.

Pursuant to the contract of mandate, Brammer agreed to place its Principals’ mineral rights in a lease offer package with other mineral owners; and, the package offered a mineral lease with a 25% lessor’s royalty to the high bidder. Encana acquired the package and Brammer inserted a reservation of a 1/32 royalty interest in its favor in the lease it granted to Encana as Agent for its Principals. A dispute arose between Brammer and its Principals as to Brammer’s right to reserve the 1/32 overriding royalty interest, and consequently Encana filed this concursus action.

The contract of mandate was based on the terms of an earlier mandate between the lessors and a third party executed in 1962 when a lessor’s royalty of 1/8 was common in north Louisiana. Therefore, Brammer asserted it was entitled to a 1/32 royalty on any lease providing for more than the “standard” lessor’s royalty of 1/8.

The trial court rendered summary judgment in favor of Brammer, but the Court of Appeal reversed. The Second Circuit recognized that, unlike lessor’s “royalty” (see La. R.S. 31:213) and “mineral royalty” (see La. R.S. 31:80), the Louisiana Mineral Code does not expressly define “overriding royalty”, but the term is acknowledged in Mineral Code Articles 126, 171, and 191. The court explained that the term “overriding royalty” is used to describe “a royalty carved out of the working interest created by an oil and gas lease,” and cited Williams & Meyers Manual of Oil & Gas Terms’definition of “overriding royalty” as “an interest in oil and gas produced at the surface, free of the expense of production, and in addition to the usual landowner’s royalty reserved to the lessor in an oil and gas lease.” Brammer @ 8.

Based on the definitions of royalty and overriding royalty set forth above, the Second Circuit found “it is clear that an overriding royalty is in addition to a lessor’s royalty.” Brammer at 9. Furthermore, based on the plain meaning of the word “additional” in the Brammer power of attorney and an assignment of overriding royalty in the Encana lease to itself, the court concluded that Brammer had to expressly reserve an additional royalty interest on behalf of the mineral owners to trigger its right to compensation by overriding royalty interest. Id. In addition, the court noted that “Brammer’s argument redefines the term “royalty” to mean “standard lessor’s royalty”, whatever that “standard” may be.” Id. Whereas 1/8 may have been the standard lessor’s royalty in the past, the court stated that by 2008, a 1/4 royalty was offered at the outset in the Haynesville Shale. Based on the fact that all lessors in the lease package received a 25% royalty from Encana, the court found Brammer “did nothing” to obtain an additional royalty for the lessors to trigger its right to an override in the leased interest. Brammer at 10.

SALE OF MINERAL RIGHTS BY MAIL SOLICITATION

Act 179 of the Louisiana Legislature, 2016

The Louisiana Legislature recently enacted the Sale of Mineral Rights by Mail Solicitation Act (La. R.S. 9:2991.1 through 9:2991.11). The Act provides form requirements for the sale of mineral rights that were solicited by mail, provides the method of rescinding such a sale, and imposes penalties on the mineral rights buyer for failure to comply with the form requirements set out in the Act. The Act is designed to protect landowners and other mineral rights owners who are at risk of exploitation. Because the doctrine of lesion beyond moiety does not apply to mineral rights under Louisiana law, mineral right owners could not previously rescind a sale of their rights for less than half of their value. The Sale of Mineral Rights by Mail Solicitation Act addresses this issue by allowing mineral rights sellers the option to rescind a mineral rights sale within a given time period, when the sale was solicited by mail containing a check, draft, or other form of payment.

La. R.S. 9:2991.2 defines the sale of mineral rights by mail solicitation as “the creation or transfer of a mineral servitude or mineral royalty, or the granting of an option, right of first refusal, or contract to create or to transfer a mineral servitude or mineral royalty, that is contracted pursuant to an offer…received by the transferor through the mail…and is accompanied by any form of payment.” Interestingly, the Act does not apply when there was a “prior personal contact” that included a “meaningful exchange” between the buyer and the seller. (La. R.S. 9:2991.3). What may constitute a “meaningful exchange” between the buyer and seller can include negotiations in person, by telephone, or by written or electronic communication. By contrast, mass-mailings and automated telephone calls do not constitute a “meaningful exchange.” [See Act 179, La. R.S. 9:2991.3, comment (c)].

Landmen mailing out “cold” offers to buy mineral rights are encouraged to follow the form requirements for a sale of mineral rights set out in La. R.S. 9:2991.4, and use the notice of rescission language provided in La. R.S. 9:2991.5 in the act of sale. They should also omit the prohibited terms described in La. R.S. 9:2991.10 from the act of sale. The notice of rescission disclosure is particularly important because when it is not included in the act of sale, the seller has a three year peremptive period in which to rescind the sale, and the buyer may be liable for attorney’s fees, court costs, and additional damages at the court’s discretion. On the other hand, when the notice of rescission disclosure is included in the act of sale, the seller has only 60 days from the date of signing the transfer to rescind the sale, and the buyer is not liable for attorney’s fees, court costs and potential additional damages as provided in La. R.S. 9:2991.9.

The Sale of Mineral Rights by Mail Solicitation Act further provides that if a seller exercises its right to rescind the sale, the written act of rescission is effective between the parties as soon as it is transmitted. The seller must repay any payments made to him by the buyer within 60 days “after rescission”. The rescission’s effect on third parties is governed by La. R.S. 9:2991.7, which generally provides that third parties are subject to the rescission only when it contains the name of the transferor and transferee and is filed for record within 90 days of the recordation of the mineral rights sale. Additional provisions regarding the effect of the rescission are contained in La. R.S. 9:2991.8 and 9:2991.9. Landmen are encouraged to read the entirety of the Sale of Mineral Rights by Mail Solicitation Act to become familiar with the form, notice, and timing provisions it contains.

Sara T. Donohue contributed to this article. Copies of the cases and/or statutes discussed above may be obtained upon request from James L. Bullen by facsimile (337-233-9095) or e-mail (jim@bullenplauche.com).

HPS Oil & Gas is currently looking for experienced Landmen for due diligence research in Oklahoma and Abstractors for north Louisiana. Ability to travel required. For consideration, please email resume and references to jbivins@hps-og.com.

The Court in BRP LLC (Delaware) v. MC Louisiana Minerals LLC, 196 So.3d 37 (La. App. 2d Cir. 5/18/16) recently offered guidance on interpreting an ambiguous depth limitation clause found in a mineral transfer. Often times when interpreting such clauses, it is important to have some basic knowledge of the geology of the region in which the minerals being transferred are located in order to fully understand any depth limitation clause contained therein. Further, new geologic structures capable of producing oil and/or gas can be discovered over time which may change the interpretation of such a clause or render such a clause ambiguous.

The transfer of mineral rights at issue in the BRP, LLC case involved a 2008 transfer of certain depths in approximately 13,000 acres from International Paper Company (“IP”) to Chesapeake Royalty, LLC (“Chesapeake”). Following the transfer between IP and Chesapeake, IP transferred its remaining mineral rights to BRP, LLC (“BRP”). Thereafter, a dispute arose between Chesapeake and BRP as to the rights that were conveyed to Chesapeake and those reserved by IP due to the ambiguity contained in the definition of the “assets” as defined in the purchase and sale agreement (“PSA”). BRP claimed that IP intended to transfer its mineral rights in the Haynesville Shale only to Chesapeake. While Chesapeake claimed that it acquired from IP all the mineral rights below the Cotton Valley formation, which includes the Bossier Shale and Haynesville formations. BRP brought suit seeking a declaratory judgment declaring that BRP owned the mineral rights in the Bossier Shale. The Bossier Shale, according to the expert testimony presented in the case, exists between the Cotton Valley formation and the Louark Group. The Louark Group consists of the Haynesville and Smackover formations.[1] The expert testimony from geologists presented during the trial indicated that the productive portion of the Bossier Shale was the Bossier C Shale located in the middle to the lower portion of the structure.

In the PSA by and between IP and Chesapeake, the mineral rights being transferred were described in pertinent part as follows:

The “Assets” shall mean the following: all of Sellers’ right, title and interest in and to (a) the oil, gas and other minerals in, to and under the lands described in the attached Exhibit A, and any and all oil and gas leases covering such lands, INSOFAR AND ONLY INSOFAR as such oil, gas and other minerals are located below that depth which is the stratigraphic equivalent of the base of the Cotton Valley formation and the top of the Louark Group defined as correlative to a depth of 10,765’ in the Winchester Samuels 23 # 1 well (API # 1703124064) located in Section 23-14N-13W, DeSoto Parish, LA, and correlative to a depth of 9,298’ in the Tenneco Baker # 1 well (API # 1701320382) located in Section 12-16N-10W, Bienville Parish, LA…[2]

The ambiguity in the definition exists because the Bossier Shale is understood to exist between the Cotton Valley formation and the Louark Group. However, the description in the transfer does not allow for a third formation to exist between the Cotton Valley formation and the top of the Louark Group. Chesapeake claimed to have known about the productive capability of the Bossier Shale at the time of the transfer while IP did not.

The lower court after hearing conflicting testimony from expert geologists on both sides and from the individuals on each side that negotiated the deal between IP and Chesapeake ruled in favor of Chesapeake. The trial court found that IP’s main intent in the depth limitation language was to reserve the Cotton Valley depths because of the shallow production it had established at those depths. Further, the lower court noted that the correspondence between the parties during the negotiations appeared to focus on the Haynesville depths being transferred to Chesapeake. Most importantly, the trial court found that the well depth footage markers contained in the depth limitation clause both denoted locations that were considered above the Bossier C Shale. The well depth footage markers were given considerable weight by the trial court in the interpretation of which zones were reserved and conveyed in the transfer. The trial court stated that “if any ambiguities exist in the depth limitation language, the logical interpretation would be to use the lower correlative marker or the depth most beneficial to the defendants.”[3]

On appeal BRP argued that due to the footage markers given in the description being erroneous in describing the top of the Louark Group and the ambiguity created thereby, the depth clause should be interpreted to convey all minerals below the lowest depth listed, which was the top of the Louark Group. The well depth footage markers given in the transfer created ambiguity because the markers denoted depths that were located within the Bossier Shale and that left several hundred feet of Bossier Shale between the well depth markers and the top of the Louark Group. Thus, BRP contended that the only way to give effect to all depths given in the depth limitation clause was to set the depth at the deepest depth given, being the top of the Louark Group. The effect of such an interpretation would be to reserve to the transferor the Bossier Shale and the Cotton Valley formations.

The Appellate Court noted that the evidence presented at trial and the expert testimony given showed that the definitions of the location and composition of formations and groups may change over time and are subject to disagreement by geologists thus leading to much uncertainty in interpretation. The oil and gas industry has handled this ambiguity by using stratigraphic markers such as the well depths used in the transfer between IP and Chesapeake. Like the trial court, the Appellate Court found that it was proper to apply the stratigraphic markers represented by the well depths as the boundary line for the mineral rights conveyed. This interpretation was supported by the expert testimony given by Chesapeake, which the Appellate Court did not find manifestly erroneous. Furthermore, the letter of intent executed by IP and Chesapeake clearly stated that the mineral rights being transferred fell below the Cotton Valley formation.

As letters of intent and purchase and sale agreements are usually not recorded, landmen usually do not have access to these contracts when examining depth limitations clauses contained in assignments and bills of sale or mineral deeds to determine the intent of the parties to the transfer. According to the BRP, LLC case, if it is not clear which depths are being transferred and which are being reserved, it would appear that less deference should be given to the formation names in any depth limitation clause and closer attention paid to the well depth markers in the referenced wells. By using the exact depths listed in the agreement you will have a clearer demarcation of ownership.

David John Rogers is an attorney in the Lafayette office of the firm Gordon, Arata, McCollam, Duplantis & Eagan LLC who focuses his practice in the oil and gas section focusing primarily on oil and gas transactions, unitization and litigation involving oil and gas issues. He is also a Registered Professional Landman (RPL) and has extensive experience prior to joining the firm as a field landman project manager handling title opinions, abstracts, due diligence, and mineral lease acquisitions in seven states, including Louisiana, Texas, Mississippi, Pennsylvania, Ohio, Colorado, and Utah.